Different stock exchanges have their own specific investor groups. Listing in multiple locations can help companies expand their shareholder base and improve share liquidity; at the same time, it can also increase the company's visibility to some extent.
Listing in the United States is because the United States is currently the most financially developed country in the world, and its related institutional design is also the most advanced. In addition to including large-scale domestic companies in the stock market, Americans also want to earn money from companies in other countries around the world, facilitate American investors' access to foreign stocks, and provide financing channels for companies from countries other than the United States.
The company will be listed on the Hong Kong Main Board Market, while its American Depositary Shares (ADSs) will continue to be listed and traded on the New York Stock Exchange. Upon completion of the listing, the Group's Hong Kong-listed shares and its NYSE-listed ADSs will be interchangeable.
Global investors can purchase American Depositary Receipts (ADRs) on American stock exchanges and simultaneously buy shares in Hong Kong. Even more impressively, Hong Kong shares can be converted into ADRs, which not only ensures high-quality share issuance but also greatly facilitates investor trading and enhances investor confidence in the group.
This marks Lu Yun's first foray into multiple securities listings within China. Due to legal restrictions, a Hong Kong listing precludes a direct US listing, as this necessitates compliance with US laws and regulations. However, a "secondary listing" in the US market can be achieved through professional financial institutions, specifically via American Depositary Receipts (ADRs), allowing US investors to purchase its shares. This enables US investors to indirectly invest by holding ADR shares. Therefore, while not directly listed on the US stock market, it provides a pathway for US investors to participate in its equity.
The three letters ADR represent three meanings: A stands for America, D stands for Depository, and R stands for Receipts.
ADR stands for American Depositary Receipts. It is one of the most widely traded and important depositary receipts on the market. It is a type of negotiable certificate issued by American commercial banks to facilitate the trading of foreign securities in the United States. It usually represents publicly traded stocks and bonds of non-U.S. companies.
The issuance and trading of ADRs take place on U.S. stock exchanges, helping foreign companies enter the U.S. market more quickly while also facilitating U.S. investors' purchase and holding of foreign company shares. Therefore, ADRs are currently the most common listing method chosen by foreign companies in the U.S. stock market, second only to IPOs.
Based on whether the issuer of the underlying securities participates in the issuance of depositary receipts, ADRs are generally divided into two categories: unsecured depositary receipts and secured depositary receipts.
Unsecured depositary receipts are depositary receipts issued by depository banks based on market demand, without the issuer's participation. Currently, these unsecured receipts are generally useless and are suitable only for shell companies.
Secured depositary receipts are issued by a depositary bank on behalf of the issuing company. The issuing company, the depositary bank, and the custodian bank sign a depository agreement outlining the relationship between the depositary receipts and the underlying securities, the rights of the depositary receipt holders, the issuance size, transfer, dividend payments, and the rights and obligations of all three parties. The information required for disclosure is more detailed. It is no different from real money.
Based on differences in trading capabilities and requirements for underlying securities firms, secured depositary receipts can be divided into four types: Level 1, Level 2, Level 3, and private placement ADRs under Rule 144A.
Level 1 ADRs: This is the level with the lowest regulatory requirements from the SEC. Companies only need to register on Form F-6, attaching a depositary agreement and ADR certificates, to establish Level 1 ADRs. It is currently the simplest way to list and trade ADRs in the US, and also the most numerous type of ADR. However, they can currently only be traded on the OTC market and do not have the ability to raise funds in the US.
Level 2 ADRs: Level 2 ADRs are significantly more complex than Level 1 ADRs. In addition to the requirements for Level 1 ADRs, companies must also regularly disclose annual report information and comply with US accounting standards. Compared to Level 1 ADRs, Level 2 ADRs offer greater transparency and disclosure requirements, and are more compliant with US securities regulations. Therefore, trading in Level 2 ADRs is no longer limited to the OTC market; they can be traded on the NYSE, NASDAQ, and American Stock Exchanges. However, they still lack the ability to raise funds in the US.
Level 3 ADRs: Level 3 ADRs are the highest level of ADRs, and the SEC (Securities and Exchange Commission) regulates them most strictly, with requirements largely consistent with those for US domestic companies. Companies in Level 3 ADRs must not only fully comply with US accounting standards but also meet public information disclosure requirements. Compared to the first two levels, the biggest advantage of Level 3 ADRs is their ability to facilitate financing. To achieve this, the company needs to provide a prospectus.
In addition to the three levels mentioned above, there is another category: private ADRs under Rule 144A, which allows foreign issuers to sell shares to institutional investors through private placements. These standards still need to meet SEC registration requirements, but do not need to meet US accounting standards. They are generally independent of exchanges and are private transactions between issuers and investors. In other words, they are a common trading method among big players and can be understood as Bitcoin.
ADR has many benefits.
First, it possesses strong fundraising capabilities.
ADRs provide companies with a new fundraising channel for listing in the US, helping them raise substantial foreign exchange funds in a shorter period. This enhances brand awareness and stock liquidity, thereby reducing corporate risk. It is particularly attractive to listed companies intending to expand their business and implement M&A strategies in the US.
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